Stocks end mixed as market mulls earnings, growth

NickGodt

NEW YORK (MarketWatch) -- U.S. stocks closed mixed Thursday, after recovering from morning losses, as investors shrugged off concerns about overheating in China and focused on the latest batch of earnings from the likes of Merrill Lynch & Co., Bank of America Corp., Merck & Co. and eBay Inc.

The Dow Jones Industrial Average
DJIA, +0.08%
gained 4.7 points to close at 12,808, having quickly recovered from a morning drop to 12,734.

News of an 11.1% surge in China's economy in the first quarter first revived concerns that Chinese monetary officials will restrict access to money and curb global growth. On Feb. 27, a sell-off in Shanghai had led the Dow industrials to plunge 416 points. But this time, Wall Street took the news in stride.

"The 4% sell-off in the Chinese market overnight spilled over around the world and some thought that this was Feb. 27 all over again," said Elliot Spar, analyst at Ryan, Beck & Co. "That would have been much too easy," he said, noting that investors remain interested in seeking bargains.

Among blue chips, Merck
MRK, +0.54%
gained 0.9%. The pharmaceutical giant's earnings were in line with expectations and it reaffirmed its outlook for 2007.

Altria Group
MO, +0.21%
fell 1%. The company's first-quarter earnings fell below year-earlier levels. Even though profits topped expectations on an adjusted level, analysts noted that unit volumes were less than expected.

Trading volumes showed 1.6 billion shares exchanging hands on the New York Stock Exchange and 2.1 billion trading on the Nasdaq stock market. Breadth remained negative, with declining issues topping decliners by 20 to 11 on the NYSE and by 9 to 5 on the Nasdaq.

"This type of action is usually resolved to the downside," said Ryan Beck's Spar. But "that will have to wait until the buy the dip crowd is satiated."

Slowing U.S. growth

Adding to concerns about growth, the index of U.S. leading economic indicators rose by a meager 0.1% in March after falling the two previous month, indicating that slower growth will persist this summer, the Conference Board said. See full story.

"The housing and manufacturing sectors are going through a correction, despite a modest pickup in March," said Ken Goldstein, labor economist for the private research group. "Business investment is another area of concern."

But economic data -- and the news from China -- have been put on the backburner on Wall Street, as investors glean through earnings.

The overseas moves are "less important than how we are perceiving earnings today," said Art Hogan, chief market strategist at Jefferies & Co. "And all this has to be seen through the lens of a market that has done very well over the past few weeks."

Similarly, news that manufacturing activity in the Philadelphia region continued to wane had little immediate impact on trade. The Philly Federal Reserve said its index was unchanged at 0.2 in April. A reading of zero would indicate that a majority of firms surveyed have stopped expanding.

Earnings meet lowered expectations

Expectations for first-quarter results have been sharply lowered, helping many companies to meet or beat forecasts, noted Robert Pavlik, chief investment officer at Oaktree Asset Management.

U.S. markets finished mixed on Wednesday, with the Dow achieving a record close after upbeat earnings from J.P. Morgan Chase & Co.
JPM, -0.72%
and Intel Corp.
INTC, -0.78%

Weakness in the technology sector persisted, however, after lower-than-expected earnings from Yahoo Inc. and a downgrade of International Business Machines Corp. See Market Snapshot.

Stocks in action

Merrill Lynch
MER, +0.00%
shares dropped 0.6%, even after its earnings topped expectations. The Wall Street firm said it earned $2.16 billion, or $2.26 a share in the first quarter vs. $475 million, or 44 cents a share, a year ago. In the year-ago first quarter, Merrill said it had one-time compensation costs of $1.2 billion. Analysts had expected earnings of $1.97 a share.

Bank of America Corp.
BAC, -0.75%
also fell after saying first-quarter net income climbed to $1.16 a share from $1.07 a share. Adjusted earnings for the three months ended March 31 were $1.17 a share, two cents ahead of the market consensus. The stock dropped 1.8%.

Schering-Plough Corp.
SGP, -0.14%
surged 8.6%. The pharmaceutical company reported a 52% rise in first-quarter profit to $565 million, or 36 cents a share. Excluding charges from three licensing payments, the latest earnings were 42 cents. Analysts had expected earnings of 29 cents.

Homebuilders continued to see weakness after DR Horton Inc.
DHI, +1.02%
said profit in its latest quarter fell 85% from a year earlier and said it continued to grapple with a challenging market for residential housing. See full story.

Shanghai deja vu

Global markets suffered heavy losses overnight, hit hard by news that China's gross domestic product soared 11.1% in the first quarter, surpassing consensus expectations that had called for 10.3% growth. See full story.

During Asian trade, the benchmark Shanghai Composite Index staunched its heaviest losses by closing time, but still registered a 4.5% loss. The Hang Seng Index took a 2.3% loss and the Nikkei 225 ended 1.7% lower.

China's GDP report frightened investors because it was widely viewed as indicating that the nation's central bank will need to lift rates soon to cool its hyperactive economy. "There will be at least one interest-rate rise, imminently," said Standard Chartered senior economist Stephen Green.

The sell-off comes after a strong performance by U.S. stocks in March and April that enabled the markets to recapture losses inflicted on Feb. 27, which also began with heavy selling in Shanghai.

Other markets

The yen rallied across the board, touching its highest level in more than two weeks against the dollar, after the sell-off in Asian stock markets prompted investors to reduce bets on riskier assets financed by cheap borrowing in the Japanese currency. See Currencies.

Crude-oil futures fell on the Chinese GDP news. Analysts noted that worries that the Chinese government will be forced to take fresh measures to cool its economy sparked concern that the nation could reduce its demand for energy.

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